Sometimes I wonder if the Globe editors write their editorials at cocktail hour. It seems to be the only rational explanation. Today's editorial, "Leading on Prudence" is a case in point. They write:
"British Columbia's Speech from the Throne this week provides every politician in Canada with a quick look at what the future holds. It may not be pleasant or popular, but it is certainly necessary. And Premier Gordon Campbell deserves credit for going first."
The editors seem to think that the bad times are pretty much over and that governments now need to focus on getting their books back in order. They praise the Campbell government plan to freeze public sector wages, slash spending at Crown corporations, health authorities and school boards and even lay off employees. And they think Ottawa and the other provinces should follow suit.
That might be fine if we were actually anywhere near a recovery. But with economies still shrinking both here and in the United States. Just two days ago Don Drummond (quoted here in the G&M), TD Bank's chief economist said that we should continue to expect job losses into next year. He goes on to state that the current EI debate should have focused on the length of benefits given the dire employment situation. And this means more government spending.
One day (also in the G&M) earlier Arthur Donner a Toronto economic consultant and Doug Peters, former chief economist of Toronto-Dominion Bank called on Ottawa to maintain fiscal stimulus to prevent years of Japan style stagnation. They write:
"Canadian and American consumers are sharply increasing the amount they are saving relative to their disposable income. In 2006, for example, the per capita savings rate was 1.6 per cent in Canada and 0.7 per cent in the United States, according to Statistics Canada and the U.S. Bureau of Economic Analysis. In 2008, the amounts rose to 3.7 per cent in Canada and 1.8 per cent in the United States.
Make no mistake: The increased emphasis on consumer saving will make the recession worse and will retard economic recovery. Indeed, this major shift toward frugality is expected to be one of the lasting legacies of this recession.
As well, households in both countries are facing the weakest labour market in decades, making consumers even more cautious about borrowing and spending. The U.S. unemployment rate, now at 9.7 per cent, will likely top out at above 10 per cent before the recession eases. Canada's unemployment rate, 8.6 per cent last month, will likely rise above 9 per cent before turning down. High personal savings rates in both countries will keep a lid on consumer spending and will limit the scope of the economic recovery next year.
Therefore, the need for an expanding government sector to keep Canada's economy on a growth path will be an essential component of a full economic recovery for some time to come.
Bear in mind an important lesson from Japan's lost decade of economic growth: Fiscal stimulus half-measures lead to years of subpar economic activity and make fiscal deficits even larger. Canada's job losses have been brutal in this recession, and a painful and difficult restructuring of our economy has already begun. In this unsettled environment, the federal government will need to sustain its infrastructure stimulus programs to ensure that Canada does not permanently have near-double-digit unemployment rates."
The Campbell government should pay heed to this advice before embarking on a course of action that will likely do further damage to the frail economy and turn the recession in B.C. into a full on depression. The Globe editors would do well to start reading their own publication before writing an opinion.